How to Prevent and Manage Online Payment Fraud in 2023
The risk of payment fraud is part of any company. The right payment system can be a huge benefit to businesses as it gives customers a satisfaction and trust as well as entices them to purchase from you in the future. An unprofessional payment system can sink your ship: today there is a lot of fraud. However, a robust platform to process payments will help reduce dangers, safeguard your customers, and make sure your business is secure. Best of all, a comprehensive platform helps merchants manage fraud without a lot of trouble or fuss.
What is a payment fraud?
Payment fraud occurs in any payment where the cardholder didn't authorize the transaction. Fraudulent payments are often made with stolen credit card details that is a form that is known as identity theft. It is common for fraud to result in losses to property or finances for the merchant, consumer, or both.
Fraud can manifest in a number of ways including stolen credit card details or stolen information from a bank account and phishing. The results of this in disputes with payment providers (also known as chargebacks) and are costly and can create problems for businesses of all sizes. Fraud tactics are varied and are likely to continue evolving as our defense mechanisms improve. In this article, we'll cover different types of fraud involving credit cards.
Pay fraud is on the rise.
In The State of Online Fraud report of Stripe, researchers found that fraud volume has increased substantially since the start in the Covid 19 pandemic: 64% of global business leaders stated that it is more difficult for them to stop fraud. 40% of businesses reported an increase in attempted card test attacks as compared with previous year.
Payment losses from online transactions are predicted to surpass $343 billion between 2023-2027, in accordance with Juniper Research. It's not a matter of the likelihood that your business is targeted, however, it's a matter of when. Facing inevitable adversity, the best option is to safeguard your business by implementing robust fraud prevention methods.
What's causing this increase in fraud? The growth of e-commerce.
Stripe observed that, in 2021, organizations using their platform processed 60% more in payment volume than in 2020. The growth in transactions created more possibilities for fraud.
The most common types of fraud in the payment industry
Card testing and carding attack
In the course of testing cards an intruder tries to make small purchases with stolen credit card details to determine if the number works, often many times, using various credit cards. This allows fraudsters to quickly verify whether the stolen data they have can be used to purchase larger amounts. Card testing typically happens whenever card details are purchased through malicious individuals in the aftermath of a data breach.
Card testing purchases are often purchased from an overseas country with delivery and billing addresses that are not in line with the location of the IP address used by the client.
Declining or refunding suspicious transactions could help to prevent this type of payment fraud. Fraudulent charges can be disputed and reversed if they're not reimbursed.
Stolen credit cards
The fraud of a stolen credit card occurs when customers make an actual purchase using stolen credit card information. In this instance, the address of delivery and billing could be completely different because the fraudulent purchaser wants the product delivered to them, not to the cardholder.
The frauds of this kind can be difficult to identify since there are many motives why customers might require different addresses for example, travel or living away from home. If there are any suspicious situations the purchase might require manual review for whether the transaction is suitable for your organization and customers.
What are the risk factors of payment fraud?
The loss of revenue as well as the loss of customer trust top the list for risk of fraud in the payment industry, however the negative business consequences of fraud activity also includes much harsher consequences: Significant fines for violating regulations or even being removed from business.
Revenue loss from disputes over payment
Abandoned carts due to fraud prevention
Stripe found that "the more fraudulent activity a company is able to block, the more likely it is to prevent legitimate purchases and also reduce the rate of conversion for payments." Preventative measures can occasionally hinder the process the purchase of a customer.
If you have too many steps to verify, or you send your customers to an pop-up or other site for them to input the details of their credit card They may be frustrated and abandon their purchase.
The merchant is responsible for the case of fraudulent transactions
Merchants are accountable for transactions that occur through their sites and their retail stores. They must decide when to approve or deny an unreliable transaction.
Charges resulting from fraud can be challenged and reversed, and will be charged due to the fraud. It is possible to avoid these charges by declining and refunding suspicious transactions. In addition you must respond to chargesback complaints with legitimate charges by providing evidence that no fraud was committed.
Five methods to prevent the risk of fraud in payment
Each of these five strategies are tools or services which can be developed in house or purchased from a third party. In-house risk management may be the ideal choice for businesses that have enough resources as well as purchased tools could simplify transaction management for small and busy teams.
Integrate fraud prevention tools
Software that establishes thresholds for fraud will block high-risk purchases that fit your set standards. The tools for detecting fraud will block the purchase that is not typical or is suspicious due to information such as IP address or a customer's profile that is unusual.
In-house solutions can require long and money to create and is a good choice for companies who require extensive customization, or that handle sensitive information. Third-party solutions are quicker to set up, but it could be charged per transaction.
The scope and sensitivity of your fraud risk will aid in determining which kind of device is right for your company.
Risk management and hiring fraud teams
Designating a person or team for review of transactions is a common practice for the prevention of fraud using manual methods. The transactions that have been flagged can be reviewed and then approved or denied based on rules and guidelines established by your business or your service provider. Manual approvals of high-risk or more expensive transactions could assist in minimizing your costs and losses due to fraudulent transactions.
The purchases that appear to be fraudulent must be rescinded or reimbursed. Disputs must always be attended by providing proof to support them, or accepted if there is fraudulent. A lot of disputes can be resolved when good evidence is provided to eliminate a charge and keeping the revenue. Some examples of evidence that is strong could be a tracking number or a screenshot of delivery, the interaction with the customer, or proof of usage. Possible evidence varies based on the type of business you operate but providing proof of receipt or usage is a good basis for dispute resolution.
Develop fraud prevention processes
The processes for preventing and responding to fraud are different for each business. It's best to begin by conducting an assessment of risk to help you or your staff to understand what your typical customer appears like, what kinds of fraud your business is vulnerable to, as well as how fraudsters might find ways around your current fraud prevention strategies.
Use the results of your risk assessment to revise your fraud threshold criteria and the fraud response procedures.
Choose a one-stop payment system
Small and medium-sized businesses, an all-in-one solution could be the most efficient choice for both your budget and your working hours.
What should you look for in a complete payment solution
Machine learning
The models of Machine Learning are trained for decision-making by being fed huge amounts of pertinent existing output and input data. Based on inputs provided, a model estimates the probabilities of a given output. The model then utilizes this probability to make decisions in the fraud evaluation of every operation.
Risk filters and customizable rules
Custom risk filtering allows firms to define risk tolerance thresholds that will alert suspicious transactions whenever they match certain standards. The thresholds can be adjusted to meet your business needs. Filters can be configured for various factors for example:
- Autorized IP addresses for particular servers or regions
- Blocked IP addresses known for fraudulent activity
- Reliable, frequent transactions coming from the same IP address
- Shipping address verification
- The amount or the volume of transactions
Flexible rules allow for different business types. Where a clothing merchant may flag purchases that are too large or a construction wholesaler may focus on shipping and billing details.